Are R&D Tax Credits Available in Utah?
Yes. The state of Utah Research and Development (R&D) Tax Credit is a non-refundable tax credit available to taxpayers with qualifying research expenditures in Utah. The R&D Tax Credit mirrors the federal Section 41 Credit for Increasing Research activities with a few exceptions. Below are some of the highlights of the Utah R&D Tax Credit:
- The Utah R&D Tax Credit is permanent and does not expire.
- The definition of qualifying research expenditures is the same as the federal Section 41 definition with the exception that only qualifying research expenses incurred in Utah may be captured towards the credit.
- Gross receipts are only those attributable to sources within Utah.
- The Utah research and development tax credit is the sum of:
- 5% of a taxpayer's qualified spending that exceed the base amount;
- 5% of payments made to qualified organizations for basic research in Utah that exceed the base amount; and
- 5% of qualified research expenses for the taxable year.
- Credits calculated as 5% of taxpayers research expenses and basic research payments that exceed a taxpayer's tax liability may be carried forward for a period of 14 years.
- Credits calculated using 7.5% of a taxpayer's qualified research expenses may not be carried forward.
Utah R&D Tax Credit Case Study
A Utah-based sporting goods manufacturer employs close to one hundred employees in its Salt Lake City offices. The Company has been claiming the research and development tax credit for many years for activities around the development and improvement of their sporting goods and protective wear. This project involved a multi-year study.
The Company qualified for the federal R&D Tax Credits of $370,500 and an additional $370,500 in State R&D Tax Credits.
FEDERAL
|
UTAH
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|||||
Year
|
Total QREs
|
Credit
|
Total QREs
|
Credit
|
||
2021
|
$1,100,000
|
$110,000
|
$1,100,000
|
$110,000
|
||
2020
|
950,000
|
95,000
|
950,000
|
95,000
|
||
2019
|
875,000
|
87,500
|
875,000
|
87,500
|
||
2018
|
780,000
|
78,000
|
780,000
|
78,000
|
||
Total | $3,705,000 | $370,500 | $3,705,000 | $370,500 |
You can read more about this Utah tax credit case study here.
Four-Part Test
Qualified research activities are defined by the four-part test outlined below
Technological in Nature
Activities must fundamentally rely on the principles of physical or biological science, engineering, or computer science.
Permitted Purpose
Activities must be performed in an attempt to improve the functionality, performance, reliability, or quality of a new or existing business component.
Eliminate Uncertainty
Activities intended to discover information that could eliminate technical uncertainty concerning the development or improvement of a product.
Experimentation
All activities must include a process of experimentation including testing, modeling, simulating, and systematic trial and error.